Riding the Wave? Expert Insights on Japan’s Booming Stock Market and New NISA Strategies for Beginners

There is no substitute for professionals when it comes to buying and selling individual stocks.”

He believes that an increasing number of Japanese individual investors are of a generation that has not experienced the pain of the bubble economy and its collapse, and that many of them have been successful in investing in U.S. stocks. The funds of such individual investors are entering the Japanese stock market as well.

Rakuten Securities is seeing an increase in the number of accounts held by young people and women. Young people have no resistance to the Internet.

Kagawa points out that online securities firms such as Rakuten Securities are increasing the number of accounts opened by offering zero transaction fees.

These developments are behind the recent rally in Japanese stocks. If Japanese equities continue to perform well in the future, what kind of investment activities are possible for individual investors?

Individual investors may not have the time to pick and choose individual stocks to invest in. They are not as good as professionals at trading individual stocks.

As mentioned at the beginning of this article, Mr. Kagawa offers five key words of advice. First, invest for the long term. Even if inflation diminishes the value of the assets in your savings account, for example, U.S. stock investments have outperformed inflation, he says. Short-term investments are susceptible to stock price fluctuations, but over the long term, it is easier to expect an increase.

Diversification is also important. Kagawa says, “You can’t always get it right with individual stocks. Specifically, he believes that investing in an index fund linked to a representative stock market index is a good idea.

Accumulating investments are those in which one invests small amounts of money on a monthly or bimonthly basis, and invests them in a steady manner. The more you accumulate, the more you can expect your assets to grow at a compound interest rate. Rakuten Securities has seen people invest as little as 30,000 yen per month, or as much as 100,000 yen per month. The stock price may fluctuate up and down along the way, but at the end of the day, the overall asset should increase,” says Kagawa.

The low cost cannot be overlooked. When securities firms and banks provide face-to-face customer service, their personnel and storefront costs are reflected in transaction fees. On the other hand, online brokerages do not incur such costs. Mr. Kagawa says, “You can also consider investing in index funds with the lowest possible costs. It is also important to keep the net return as low as possible,” he says.

Finally, there are tax-saving measures. When you invest in stocks, mutual funds, and other financial instruments, you are subject to a tax of about 20% on dividends you receive and gains you make on sales, but the government has a system that exempts you from paying this tax up to a certain limit. The NISA, which started in 2002, and the new NISA, which started this year, are the most profitable ways to take advantage of this system. Taking advantage of these will be profitable.

Individual investors can invest their core assets in the new NISA, etc., and if they still see a shortage of funds for future retirement and other needs, “they may consider investing other satellite assets in Indian index funds,” says Kagawa.